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Donated Pills Make Some Charities Look Too Good On Paper

This article appeared in the December 19, 2011, issue of Forbes Magazine. For the Forbes list of the 200 U.S. largest charities, click here.

Upwards of 100 million deworming pills are distributed annually by U.S.-based nonprofits to help Third World residents fight intestinal parasites that consume food in their stomachs, causing hunger and starvation. These chewable generic pills—mainly mebendazole and albendazole—are highly effective, especially for kids; just two pills a year and the worms stay gone. It’s a terrific, feel-good health-improvement story for any nonprofit to tell.

Operation Blessing's Bill Horan in Haiti surrounded by 1 million deworming pills he says cost less than 5 cents each.

But for years these medicines and some questionable accounting have been just as effective in enabling perhaps a dozen nonprofits on the annual FORBES list of the 200 largest U.S. charities to inflate their stated contributions and financial efficiencies. The pills can be bought on world markets in Europe, China and India for 2 cents each. But they have been valued on some nonprofits’ financial statements as noncash gift-in-kind (GIK) donations worth as much as $16.25 per pill—81,000% above that world market price.

Over the years this practice has added billions of dollars to charities’ reported donations. It has spread, in large part, via a shadowy network of pill-pushing brokers, intermediaries and agents. Some operate as their own charities or as stalking horses for obscure drugmakers. In some cases these middlemen supply not only the medicine, but also suitable-for-the-auditor paperwork showing inflated drug values.

FORBES can’t find any evidence that a large bulk deworming medicine donor anywhere shelled out in cash more than a few pennies per pill. Yet loose accounting rules for donated GIK goods, a questionable drug-pricing list and the drug price disparity between U.S. and foreign markets have provided charities some cover for their use of even the most egregious GIK valuations. Indeed, the biggest scandal here might just be what’s legal.

If the kids are getting needed medicine, why worry about the accounting? The charities are trying to look growing and efficient as they fight for cash contributions from you, the would-be donor. “That’s clearly the reason they do it,” says Christopher Murray, a University of Washington health professor who runs the Institute for Health Metrics & Evaluation, which is funded by the Bill & Melinda Gates Foundation.

Consider Crista Ministries, on our list since 2005. Situated for 50 years on a leafy campus north of Seattle that once housed a tuberculosis sanatorium, Crista operates schools, ­retirement communities, radio stations and a foreign aid program. In its fiscal year ending this past June it reported a hefty $85 million in gifts received, the metric we use in determining if a charity will make our list. On its website Crista brags about high financial efficiency. But you won’t find Crista on this year’s roster. Reason: Some $63 million was from deworming pills donated to its World Concern ministry and valued as high as $10.64 a pill. If the pills are marked to their market value, Crista looks a lot less efficient and its donations received shrinks to just $23 million. Cutoff for our list: $46 million. Crista said it is reevaluating how it values GIK but defended its numbers. “We are using industry-accepted values,” a spokesman writes.

Islamic Relief USA, which solicits among U.S. Muslims and made our list last year for the first time on the basis of 2008 results, just reported $182 million in gifts for calendar year 2010—all but $40 million of that in donated goods. But the Alexandria, Va.-based charity now suspects a huge chunk of that GIK was mebendazole put on its financials at $16.25 a pill. Such uncertainty also warrants exclusion from our list this year. After questions were raised, Islamic Relief USA suspended its GIK program, hired an outside law firm to take a closer look and says it intends to file amended ­financial statements.

“The process of grossly exaggerating medicines mocks the poor, the ill, the giving public, the government and higher authorities,” says Luke Hingson, head of Pittsburgh’s Brother’s Brother Foundation. His leanly run charity, which long has been on our list, deals almost exclusively in foreign-delivered GIK but years ago stopped accepting deworming medicine.

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